22 July 1993 External T.I. 9317785 F - Employment Benefits - Ontario Insurance Levy

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

XXXXXXXXXX

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Tax Implications of Ontario Budget Changes

This is in reply to your letter of June 15, 1993 in which you requested clarification of Revenue Canada's position with respect to the treatment of the payment of a provincial retail sales tax on insurance premiums, as proposed in the Ontario Budget of May 19, 1993.

The proposal extends Ontario's 8% provincial sales tax to apply to, among other things, certain insurance premiums. The noted exceptions include automobile insurance premiums which are to be taxed at 5% and those relating to individual policies for life, health, and physical well-being which are to be exempt from tax. It further indicates that uninsured benefit arrangements will also be subject to the tax.

In your letter you describe the current situation in which an insurance premium has a 2% "premium tax" built into it. Although your letter indicated that this tax will now become visible to the payee, along with the new 8% tax, as a tax levy on what you have termed the "base premium cost", in a telephone conversation of July 7, 1993 (XXXXXXXXXX/Szeszycki) you clarified that such is no longer the case; the 2% levy will continue to form part of the base premium as it has in the past. Consequently, your specific enquiries, as set out below, have been amended accordingly.

Employee-Pay-All Plans

You have set out two examples in your letter involving what to date would be considered an employee-pay-all plan where the premium (2% tax included) is paid entirely by the employee. Due to the change in the facts concerning the 2% levy the two examples become identical describing the event where the employer would opt to pay, on the employee's behalf, the new 8% levy. You have asked whether the plan benefits would continue to be exempt from income inclusion under paragraph 6(1)(f) of the Income Tax Act (the "Act") as an employee-pay- all plan and whether the payment of the new tax by the employer on behalf of the employee would constitute a benefit under paragraph 6(1)(a) of the Act.

Our Comments:

Where the plan is arranged as an employee-pay-all plan, the obligation to pay the new tax levy will rest with the employee. It is the Department's position that, if the employer pays the new tax on the employee's behalf, such a payment would constitute a taxable benefit to the employee under paragraph 6(1)(a) of the Act. However, the plan will be considered to retain its employee-pay-all nature and the benefits payable under the plan will continue to be exempt from inclusion under paragraph 6(1)(f) of the Act.

Other Employee Benefits

You have also asked for confirmation that, with respect to employer contributions to other tax sheltered benefits such as private health services plans and group term life insurance policies, the payment of the additional 8% tax will not give rise to a taxable benefit to the employee.

Our Comments:

The Department takes the position that, to the extent that the payment by the employer of the underlying premium would not be treated as a taxable benefit in the hands of the employee, the additional 8% levy will be given the same treatment.

Consequently, with respect to employer-paid premiums for group term life insurance policies for example, to the extent that the underlying premium relates to coverage in excess of $25,000, the 8% levy will be added to the benefit enjoyed by the employee under paragraph 6(1)(a) of the Act.

We hope that our comments will be of assistance to you.

Yours truly,

P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

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